CoTec Market Update

0:08 So hello everyone, thanks for joining us and welcome to Kotex live webinar hosted on 6. Today's event, as always, is being recorded and the replay will be available just a few hours after it concludes. This is also an interactive webinar. There's a chat button on the bottom right-hand side of your screen, it's a little box. Please post any questions you'd like, and we'll try to get to them during today's event. The earlier you put in your questions, the more likely they are to have time for them. All that being said, I'm thrilled today to have with me Julian Trager, CEO of Kotek. How are you today, Julian? Great, Ramiro. And thanks for having us on your program. Oh, awesome.

0:40 Now, here's how today's event will go. I'm going to start by throwing it to Julian for a quick update on recent press releases before we get into some questions that I have for him. And then finally, we'll go to the questions from the live audience. We're open to wrap up within about a half hour today. So keep that in mind as you're thinking about posing your questions. But let's get started. Julian, the floor is yours. Thank you. Thanks, Romeo. Well, I think since we last did an update, we've been super busy at Cotech, you know, continuing to implement our strategy of becoming the disruptive mining business of the 21st century using technologies. We've got a number of those technologies we'll speak about, but we've been moving more to focus on the asset side, as you'll see.

1:29 And, you know, We've been quite happy with the commodities we've selected. As you may be aware, there's been a real decline in a number of commodity pricing this year. But with a green Copper, green Iron ore and strategic rare earths for North America and the US, I think we are well placed. So after a while of silence, we did make 2 announcements last week. First of all, talking about the feasibility study of our rare earth magnet recycling business, HyperMag, and also the appointment of a ex-admiral from the US Navy seals to the board as indications of the strategic nature of the business we're involved with.

2:24 So with that very brief introduction, Romy, I'll turn over to you for questions. No, Sounds great. Yeah. So I prepared a few questions just after some careful reading of your last couple of press releases. So bear with me. First is now that Kotech has commenced the feasibility study. What are the next steps that investors can expect to see? Well we're taking steps on multiple fronts at the same time. First of all, the parties we've appointed to do the feasibility study, BBM Pegasus, have been onboarding in Europe last week, meeting key manufacturers in Germany and Poland, and they're currently at the HyperMAC plant in Tysley. All of the experience from both the UK and Germany will be transferred to the US feasibility study as a result.

3:18 Then site selection has started. This will be driven by Pegasus working with our environmental consultant, Western Solutions. And we're currently focused on Texas, near Fort Worth for one of our recycling spokes and the main magnet production facility. We expect the initial nameplate production to be 500 tons of finished magnets a year. And our hub and spoke approach will allow this model to be expanded quickly in the future as demand ramps up in the U.S., not only in the U.S., but also in Canada, where we could expect some feed.

3:58 We're targeting completion of this feasibility study in the second half of the year. And permitting will then start once the sites have been confirmed. All of that means we expect to commence production in late 25, 26, which is pretty quick for something in the natural resources. We're ramping up discussions with feed suppliers and off-takers. We expect premiums for recycled products to support the energy transition and security of supply. The life of the plant we see as being 50 years plus, which is also pretty attractive compared to a mining project, which normally has a life of less than 20 years. So a lot is happening on that front, Romeo.

4:45 And You're not kidding, you say it's faster than most in the resource sector. So, Kiros, with that speed, following the feasibility study and the construction decision, when do you expect the business to be up, running, generating revenue?

4:59 Well, as I mentioned, in 2025-2026, which is not that far away. I mean, the benefit of our approach is that feed material is already being tested in the pilot reactor in the UK. Production at Taisley is planned to provide customer and project partner samples, and commercial production at Tysley will start with an initial throughput of 20 tonnes per annum of rare earth magnet and alloys, and this will be scaled up to a minimum of 100 tonnes per annum in the following months. But that's all happening already, starting to happen this year. So we can piggyback on that. And then larger scale-up scenarios of up to 1,000 tonnes per annum are currently being evaluated for the UK.

5:45 The magnets produced at TISE in the UK are of commercial grade and they have good coercivity, which means resistance to magnetization, and remanence, or magnetic strength, both of which are key measures of magnetic performance. To date, over 3,000 magnets have already been produced in Birmingham, and these are being tested in a wide range of applications, including multiple automotive, aerospace, electronics,

6:16 and others which are planned. So all of this provides invaluable marketing and technical information, which allows us to scale up and commercialize the operations in the US far quicker than if we were just starting from scratch. Makes sense. I did want to zoom out a second. I know a lot of our audience here certainly are experts or sophisticated investors. I'm curious to zoom out on your perspective on why rare earth elements are critical to the United States from a strategic perspective?

6:49 Well, I think rare earths are used in many, many machines and motors, but for the US in particular, they are used a lot in the defense applications, ranging from night goggles to, you know, missile systems. And the U.S. Cannot be dependent upon China for those sources of materials. The Chinese have already announced late last year that they were starting to reduce certain strategic materials. And so it's super important that the U.S. Has independence. And what's very exciting about the HyperMag technology is that it uses the strength of the US, which is that it's an advanced economy with a lot of magnets already circulating within the economy and uses that as a strength to recycle those things. So we aim to produce a long-term secure supply of magnets for the U.S. Economy

7:53 and for prime U.S. Defense contractors. And what's gratifying is that HyperMag in the U.K. Has been selected by the Department of State already as a key MSP project and is one of the most advanced. And so we're having good traction in Washington, which I can talk to you about. Yeah, I mean, in that vein, given the importance to the US, are you going to be approaching the government to assist for funding, rollout, et cetera? Yeah, I was actually in Washington last week at the SAFE Summit. And we met with a number of key stakeholders from various U.S. Departments who are interested in supporting HyperMAG, both in terms of building, you know, the strength of the U.S. Economy, but also in terms of the strategic angle.

8:51 And so these are things we will be pursuing in the coming months. And of course, our recent appointment of Bob Hayward, the former Vice Admiral from the SEALs and a Senior Defense Technology Executive to the board of COTECH, demonstrates our commitment to the US. And we're looking forward to working with him in progressing discussions with the government for grant funding. But there are also a lot of, you know, commercial partners who are interested in funding this business. All right on. Zooming out a bit to other operations, can you provide a brief update on the Lactunine property which, as I understand it, is coming up on its own feasibility study soon?

9:40 Sure. I mean, we're very excited about Lactunine because it is potentially the base of a big division for Kotech, which would be rolling out the recycling of iron ore tailings in North America in a green way and creating green inputs for green steel in North America, again, increasing the independence of North America in this area. So we've had pleasing progress on Lakshanin. In under a year, we've completed sampling and mineral testing at Corum and BSL, and we expect to release a preliminary economic assessment shortly. But that's all going well. We're looking forward to announcing the results of what we've seen thus far.

10:37 And as I mentioned, one of our key focus areas is supplying recycled iron tailings to support the green industry and particularly electric arc furnaces. And there's a lot of demand for that sort of product, particularly in North America. There's not clear where the feed supply is coming from for all the new projects that are being planned and announced. So following the preliminary economic assessment, the project will move into

11:06 the feasibility study phase. Great. Now, this question about the business model generally, and that's, is Kotech going to apply a similar model to the copper leaching technology we've got, SABO, as well as other technologies. And as a follow on question, how many technologies and assets does Kotech expect to acquire overall? So our fundamental technology is not to be a venture capitalist, but to identify these disruptive technologies and then roll them into asset opportunities, particularly assets which aren't highly valued. So as you have seen, we have a major emphasis on waste, on recycling, on tailings, on urban mining, all of which I think is super important

11:54 to supply the shortfall of strategic minerals, which the world is gonna need to complete the cooling process with regards to carbon emissions. So we're active investors but we also support the rollout of the technology. For Sabre our business model is focused on a five-year road to revenues, as well as with our other technologies. So we think that we don't have to worry about planning, permitting in the same way that a new mine would. And so we can get these materials to market

12:37 in quick succession. And within our core area of green iron inputs, green copper and critical minerals, we continually look at complementary technologies. There are a couple of very interesting technologies we are in advanced stages of exploring and hopefully during the course of this year, we'll have 1 or 2 which come to fruition. I mean, ultimately, I don't think we want to have more than, you know, 7 to 10 technologies. Already with iron ore and copper and rare earths, that's a huge market for us to develop and

13:22 explore and scale. And what's great, Romeo, is I don't see much competition to what we're doing. Nobody yet is copying us. I think we have the area of technology and its application to these undervalued assets, you know, relatively to ourselves. With regards to SABO, our experience thus far has been that it generally takes about a year from the time we announce an investment in a technology to the time we can announce the first asset application of that technology because We have to learn more about the technology and where it is best suited. So we are working on several opportunities for SABRE.

14:11 We're trying to be very disciplined when looking at these opportunities. And many of these assets are from legacy tailing sites, which will be developed in partnership with governments. On the INOR side, with L'Actionine, we're working with the government of Quebec and Investment Quebec. And similarly, we're looking for tailings opportunities, low-grade tailings opportunities for Copper. What's great about the Sable technology is that previously deposits which were not considered economic because they were too low grade, do work with this technology. And therefore, it opens up a whole universe

14:58 of sites for us to explore. So watch this space. Hopefully by Q3, we'll be able to announce the beginnings of what will be our copper division. Awesome. Well, Julian, thanks so much. We are going to get into audience questions now. There are a number already, but just for the group that came in a bit later, just so you know, the bottom right of your screen, there's a chat box. You're welcome to pose any questions. If we have time, we'll make sure we get to them. So I'm going to throw these questions at you, I think, in order of easiest to answer up to most complicated, so we can run through some of the quick ones. Barry asks, when can we expect the next annual financial statement? Well, we're at work on that. I think that will be coming out in the next month or so.

15:46 So sometime, you know, towards the middle of April, I think, should be a reasonable time. Perfect. Thank you. Tony asks, is Kotec revenue positive? He says it's currently unclear to him.

16:00 Well, no, it's not revenue positive. I think our investment in the hypermag business does generate small revenues. So there is the beginnings of that, but not yet. We only started very recently. And as we mentioned, the time to getting into production and creating revenues is far faster than the 20 years you would normally see from a mining business, but it still is 3 to 5 years. So, You know, you have to give us a year or 2 and then we should be much more revenue generative. Makes sense. Thank you. Giglio has a question. Always great to see another Italian in the room. He notes that Kotex share price seems a bit volatile because of thin trading. He wants to know if you think your major problem in that regard is buyers or sellers?

16:54 Sometimes it's buyers and sometimes it's sellers. But of course, being the CEO of a company, I'd always say, there are never enough buyers and there are always too many sellers. But it is a market. We have been seeing much more volume recently, which is a, so at least there's turnover. People who want to sell have been selling. People who want to buy have been buying. I am particularly bullish about the value of Kotex. As you may have seen, I have been increasing my shareholding repeatedly and I plan to continue to do so because I think the value of the business is multiples of where it's trading at. But we're at a level where some people have got big profits and want to realise those and other people want to get into the name. So, you know, I think as we begin to daylight the value that we've created in these different divisions, I think, you know, the stock will move to a different level.

18:01 I appreciate that. Barry also asked, do you expect the current NCIB to push the share price closer to what you consider fair value? Well, what I consider fair value is so far away from the current share price that I don't think that will be the case. But the NCIB isn't really being used to push the share price in one direction or another. And at the moment, for instance, we are in a closed period ahead of the results announcement, So we are not in the market at all. It's really something to help to, you know, maintain reasonably liquid market on days when there isn't liquidity. Thank you.

18:47 Cooper Oliver asks, what other jurisdictions do you plan to roll out HyperMAG joint ventures to? So, HyperMAG already has Europe. We mentioned that the US could include Canada and we have had some discussions with parties both in Japan and in the Middle East about potentially creating new joint ventures in those jurisdictions. Ultimately, you know, the vision for HyperMag is a global business, which is focused on the West, focused on the historic embedded inventory of magnets, which operate in those economies. And, you know, I think once we are in a revenue producing situation in 2025-2026, we will start to explore whether we could eventually list the business with significantly more revenues in a market like the US.

19:51 Great. So I said I do these questions in order of difficulty. This last one's probably the trickiest to talk about. So answer it to the best of your ability. Tony asks if November's election could screw up, his words, not mine, the critical mineral strategy and asks how it factors into Gotek's plans. I don't think so. I think there is real bipartisan support. No matter who's going to be president, people look at the world. They look at the fact that, you know, the Chinese have doubled their military budget over the last 7 years. They look at the fact that Russia's on a war footing and 30 percent of that economy is now diverted to defense. And the U.S. Needs to protect itself. The West needs to protect itself.

20:38 So I hope we're not going to be in a war, but I certainly think we're going to be more on a defensive war footing. And in that respect, I think the commodities we've chosen, Copper, Green, Steel, and particularly Rare Earths, will continue to be priorities for the U.S. In fact, the rare earth price has gone down a lot this year in conjunction with all the other inputs for batteries, nickel, lithium and cobalt. But I think uniquely amongst those commodities, you know, there's no hesitation that we need to therefore buy rare earths from China. And in fact, Chinese are restricting the supply of rare earths. So I think we should be well placed, but investing in commodities is a tricky area. You have to tread gingerly, but we've got a great track record of doing this successfully for the last 20 years.

21:47 And I think we're well placed regardless of what happens in Washington in November. Great. Thanks. Looks like one last question unless while Julian's answering, he's got one more. But he asks, is it possible that the HyperMAG-Cotech partnership could be spun out as an IPO? Yeah, absolutely. But not for a couple of years. As I said, you know, and when we do that, it would be best if we could potentially collapse all the different partnerships into one company and list a global operation. But if I'm correct about the way in which US politics evolves, I think this could be a very, very valuable business. And what's exciting for Kotech is that it owns 60% of the US business, which is where the bulk of the value is going to lie. So we're very excited about the potential of just this business, but the other businesses that we're involved in have equally amazing potential. So lots to play for here.

22:52 Now, excited to see what you guys get up to in 2024. Now, it does look like the end of questions. So if anybody thinks of the perfect question to ask right after the event ends, as I often do, please reach out and I'll make sure the Cotech team gets back to you as soon as possible. And for those of you who requested meetings, I'll also submit those to the Cotech team. By the way, thank you so much for joining us today, particularly those who asked questions. And Julian, thanks so much for being with us. It's always a pleasure, Romeo. Thank you. Jeremiah, thank you.